Interest Tax Rate Between India and Brazil Under DTAA

Quick answer: Under the India-Brazil DTAA as revised by the 2022 protocol, interest paid from India to a Brazilian resident is taxed at 10% under Article 11(2)(a) where the beneficial owner is a bank and the loan runs at least five years for financing the purchase of equipment or of investment projects, and 15% under Article 11(2)(b) in all other cases — both below the domestic rate. Interest paid to the Government, a political subdivision, the Central Bank, or a wholly-owned agency is exempt under Article 11(3)(a); a separate, older carve-out in Article 11(3)(b) — untouched by the 2022 protocol — gives the issuing state exclusive taxing rights over interest from government-issued securities and bonds. The revised 10%/15% rates apply for income arising in India from FY 2026-27 (1 April 2026) onward.

Key takeaways:

• 10% for a qualifying long-term bank loan financing equipment or investment-project purchases (Article 11(2)(a)); 15% general rate otherwise (Article 11(2)(b))
• 0% recipient-side exemption for government/central-bank/wholly-owned-agency interest (Article 11(3)(a)) — but check the separate Article 11(3)(b) issuer-side rule for government securities before assuming it is covered
• Article 11(6) denies the 10%/15% caps where interest is routed through a third-state PE taxed at a lower rate there
• Brazil's "juros sobre o capital próprio" (interest on net equity) counts as interest under Article 11(4), per the protocol
• Brazil has not signed the MLI — anti-abuse runs through the treaty's own Article 26-A (LOB + PPT)

Interest Tax Rate Between India and Brazil

The India-Brazil DTAA was signed on 26 April 1988 and entered into force on 11 March 1992. Its interest article, Article 11, was substantially rewritten by the amending protocol signed at Brasília on 24 August 2022, which entered into force on 18 October 2025 after Brazil's ratification (Legislative Decree 200 of 11 September 2025, Decree 12.667 of 13 October 2025) and India's notification No. 39/2026, S.O. 1647(E) of 30 March 2026. The revised rates apply in India for income arising from FY 2026-27 onward (1 April 2026); Brazil applies them to amounts paid or credited from 1 January 2026. Before the protocol, the treaty capped interest at a flat 15% (subject to the same government exemptions), so the 10% long-term-loan tier is new.

Treaty Rate vs Domestic Rate

Domestic Rate (Without DTAA)

India's headline non-resident withholding rate of 20% under section 207(1) (Table, Sl. No. 3) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) is scoped to interest on foreign-currency-denominated loans, deposits, and specified bonds. Rupee-denominated interest paid to a non-resident — for example, interest on an NRO deposit — instead falls under the general "rates in force" for non-residents under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), which can run as high as 30% for an individual or 35% for a foreign company plus surcharge and cess. Whichever domestic rate applies, the DTAA's 10%/15% caps are a real ceiling on India's tax under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), the more-beneficial-rate rule.

DTAA Rate (With Treaty)

Article 11(2), as replaced by the 2022 protocol, caps India's tax at "(a) 10 per cent of the gross amount of the interest if the beneficial owner is a bank and the loan has been granted for at least five years for the financing of the purchase of equipment or of investment projects; or (b) 15 per cent of the gross amount of the interest in all other cases." Note the treaty's own wording: it is "the purchase of equipment or of investment projects", not "industrial equipment" — a narrower, more specific description than some commentary suggests.

The Government and Central Bank Exemption — Two Separate Rules

Article 11(3) contains two distinct carve-outs that are easy to conflate, and doing so is the most consequential drafting trap in this treaty's interest article.

Article 11(3)(a): Recipient-Side Exemption

As replaced by the 2022 protocol, this rule provides that "interest arising in [a] Contracting State and paid to the Government of the other Contracting State, a political sub-division or local authority thereof, the Central Bank or any agency (including a financial institution) wholly owned by that Government or political subdivision shall be exempt from tax in the first-mentioned State, unless sub-paragraph (b) applies." So interest paid to the Reserve Bank of India, the Banco Central do Brasil, either central government, or a wholly state-owned financial institution is exempt at source — but the exemption is expressly conditional on subparagraph (b) not applying.

Article 11(3)(b): Issuer-Side Exclusive Taxation (Unchanged Since 1988)

This subparagraph was not amended by the 2022 protocol — it remains the original 1988 text, and it addresses a different scenario. In full, it provides that "interest from securities, bonds or debentures issued by the Government of a Contracting State, a political sub-division thereof or any agency (including a financial institution) wholly owned by that Government or political sub-division shall be taxable only in that State." Note that, unlike sub-paragraph (a), it does not extend to a local authority or to the Central Bank as such — it turns on who issued the security. This is a carve-out from the 10%/15% caps in paragraph 2 altogether, not merely a rate reduction. Practically: interest that Brazil's government pays directly to an Indian lender is exempt in Brazil under 3(a); but interest a Brazilian holder earns on Government of India securities is governed by 3(b) — India, as the issuing state, retains exclusive taxing rights and applies its own domestic rate, and Brazil may not tax that interest at all. A page or advisor that describes "15% general" as covering all Indian-government-security interest paid to a Brazilian holder is applying the wrong rule; 3(b) removes it from the 10%/15%/0% framework entirely.

Who Qualifies for the Reduced Rates

Beneficial Ownership and Tax Residency

Both the 10% and 15% rates require the Brazilian recipient to be the beneficial owner of the interest and a tax resident of Brazil under Article 4, evidenced by a Tax Residency Certificate from the Receita Federal do Brasil.

The 10% Bank-Loan Test

The 10% rate is narrowly drawn: the beneficial owner must be a bank (not any financial institution), the loan term must be at least five years, and the proceeds must finance "the purchase of equipment or of investment projects." A loan that is shorter than five years, made by a non-bank lender, or used for general working capital falls to the 15% general rate rather than 10% — it does not fail out of the treaty altogether.

Anti-Abuse: Article 11(5) PE Exception and Article 11(6) Third-State Rule

Article 11(5) withdraws the 10%/15% caps where the beneficial owner carries on business in India through a permanent establishment, or performs independent services from a fixed base, and the underlying debt-claim is effectively connected with it — the interest is then taxed as business profits under Article 7 or Article 14. Separately, and specifically targeting back-to-back and treaty-shopping loan structures, Article 11(6) provides that "the tax rate limitation provided for in paragraph 2 shall not apply to interest arising in a Contracting State and paid to a permanent establishment of an enterprise of the other Contracting State which is situated in a third State if such interest is effectively taxed at a lower rate in the other State than it would be if the interest was directly paid to the enterprise of that other State." In other words, routing a loan through a Brazilian enterprise's PE in a low-tax third jurisdiction to capture the treaty's 10%/15% cap does not work if that PE's home state taxes the interest more lightly than Brazil itself would.

Article 26-A: No MLI, But a Bilateral LOB + PPT

Brazil has never signed the OECD Multilateral Instrument, so this treaty is not a Covered Tax Agreement. The 2022 protocol's own Article 26-A instead requires a Brazilian resident to be a "qualified person" (individual, government body, a company whose principal class of shares is regularly traded on one or more recognised stock exchanges, certain non-profits, or an entity majority-owned by qualified persons) to claim benefits, subject to an active-business exception that excludes pure investment-holding vehicles, and independently denies any benefit under Article 26-A(9) where obtaining it "was one of the principal purposes of any arrangement or transaction." A conduit financing vehicle interposed in Brazil purely to access the 10% bank-loan rate is squarely within scope of this test, alongside India's domestic GAAR (preserved by Protocol clause 1).

Interest on Brazilian Net-Equity Instruments

Protocol clause 5 clarifies that, "in respect of paragraph 4 of Article 11," interest paid as "interest on the company's equity" (juros sobre o capital próprio in Portuguese) under Brazilian tax law is also treated as interest for treaty purposes. This Brazilian corporate-finance instrument — a deductible payment to shareholders calculated on equity rather than debt — is therefore covered by Article 11's rate caps and exemptions like any other interest, not carved out as a dividend-like payment.

Rate Comparison Table

Worked Example

Banco Andina S.A., a Brazilian bank, lends USD 4 million to an Indian manufacturer for a seven-year term specifically to finance the purchase of new production equipment. Annual interest of INR 2 crore is paid.

• Qualifying test: the lender is a bank, the loan term is seven years (above the five-year minimum), and the proceeds finance an equipment purchase — Article 11(2)(a) applies.
• Withholding at 10%: INR 2,00,00,000 × 10% = INR 20,00,000, versus INR 40,00,000 at the 20% foreign-currency domestic rate — a saving of INR 20,00,000 per year.
• Documentation: Banco Andina needs a current Receita Federal TRC and Form 41 on file; the Indian borrower files Form 145 (and Form 146, since the remittance exceeds INR 5 lakh) before each remittance.

If the same loan instead had a three-year term, or funded general working capital rather than equipment, it would fall to the 15% general rate under Article 11(2)(b) — still a saving over the domestic rate, but not the preferential 10% tier.

Withholding Procedure

The Indian payer deducts tax under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961) at the time of payment or credit, files Form 145 online before remittance, and obtains a Chartered Accountant's Form 146 where the remittance exceeds INR 5 lakh. If the Brazilian lender's actual liability is lower than the withholding, it applies for a lower/nil-deduction certificate under section 395(1) (section 197 of the Income-tax Act, 1961); the payer's own route to a determination is section 395(2) (section 195(2) of the Income-tax Act, 1961).

Common Mistakes and Compliance Tips

Mistake 1: Applying "Industrial Equipment" Instead of the Treaty's Actual Wording

Article 11(2)(a) refers to "the financing of the purchase of equipment or of investment projects" — a broader and differently-worded test than "industrial equipment," which some summaries mistakenly substitute. Any equipment purchase or investment-project financing by a qualifying five-year-plus bank loan can meet the test; it is not restricted to industrial machinery.

Mistake 2: Treating All Government-Security Interest as Falling Under the 15% General Rate

As explained above, interest from securities or bonds issued by a Government, political subdivision, or wholly-owned agency sits entirely outside the 10%/15% framework under Article 11(3)(b) — it is taxed exclusively in the issuing state, not capped at 15% by the source state.

Mistake 3: Missing the Third-State PE Anti-Abuse Rule

Article 11(6) is easy to overlook because it targets a specific structure — a loan routed through a PE of a Brazilian (or Indian) enterprise sitting in a third, lower-tax jurisdiction. Lenders using multi-jurisdictional financing structures should confirm the PE's home-state tax treatment before assuming the treaty cap survives.

Mistake 4: Forgetting the Foreign-Currency Scoping of the 20% Domestic Rate

The 20% domestic rate under section 207(1) applies to foreign-currency-denominated interest; rupee-denominated interest to a non-resident can attract a considerably higher domestic rate, making the treaty's 10%/15% caps an even larger saving in that scenario.

For a fuller treaty overview see the India-Brazil DTAA complete guide and the withholding tax rate table. For structuring cross-border loans and FEMA/RBI-compliant financing between India and Brazil, contact Beacon Filing's chartered accountants and tax advisors.

Frequently Asked Questions

What is the interest withholding tax rate under the India-Brazil DTAA?

10% under Article 11(2)(a) where the beneficial owner is a bank and the loan runs at least five years financing the purchase of equipment or investment projects; 15% under Article 11(2)(b) in all other cases. Both apply for income arising in India from FY 2026-27 onward.

Is interest paid to the Government of Brazil or India exempt from withholding?

Yes, under Article 11(3)(a), interest paid to the Government, a political subdivision, local authority, the Central Bank, or a wholly-owned agency is exempt at source — unless the separate Article 11(3)(b) issuer-side rule for government securities applies instead.

Does the 15% general rate apply to interest from Indian government securities held by a Brazilian investor?

No. Article 11(3)(b), unchanged since the original 1988 treaty, makes interest from securities, bonds, or debentures issued by a Government, political subdivision, or wholly-owned agency taxable only in the issuing state — India, as issuer, applies its own domestic rate rather than the 10%/15%/0% caps.

Can a loan lose the 10% rate if routed through a third country?

Yes. Article 11(6) denies the treaty's rate caps where interest is paid to a permanent establishment of a Brazilian (or Indian) enterprise situated in a third state, if that interest is taxed at a lower rate there than it would be if paid directly to the enterprise itself — a targeted anti-treaty-shopping rule.

Does Brazilian "interest on net equity" (juros sobre o capital próprio) qualify as interest under the treaty?

Yes. Protocol clause 5 confirms that interest on net equity under Brazilian tax law is treated as interest for the purposes of Article 11(4), so it is covered by the same rate caps and exemptions as ordinary interest.

Does the MLI modify the India-Brazil DTAA's interest provisions?

No. Brazil has not signed the OECD Multilateral Instrument. Anti-abuse protection for interest payments comes from the treaty's own Article 26-A (Limitation of Benefits plus Principal Purpose Test), inserted by the 2022 protocol, alongside India's domestic GAAR.